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Wall Street Unclear on AT&T-Time Warner Deal Vetting

Most analysts are agreed that the Justice Department will be doing the major vetting of the AT&T-Time Warner deal, but less clear is how big a role the FCC will have and what the ultimate outcome will be.

Related: AT&T's Stephenson: Time Warner Brings Speed, Innovation

The DOJ will definitely look at the deal for antitrust issues. The FCC's role is less clear. Time Warner still owns WPCH Atlanta—the Turner "superstation" flagship formerly known as WTBS. But beyond that, there may be no other licenses that would trigger FCC's broader public interest review.

There was some difference of opinion over whether there were some satellite licenses involved that would also trigger FCC scrutiny. Some analysts, and one veteran communications attorney, thought there might be some satellite uplink licenses, but an FCC source said they did not know of any. An FCC spokesperson had no comment at press time to resolve that issue definitively, though a source speaking on background said that it appeared there was "at least" one license, WPCH. 

Related: AT&T-Time Warner Expect to Grow Ad Platform

If there are no other licenses, Time Warner could divest WPCH to get the FCC out of the review, but given that the FCC would have to approve that sale, it is unclear how that would affect the timing.

Whoever does the vetting, access to over-the-top content will be a big issue.

Craig Moffett of MoffettNathanson says that AT&T can "forget about" zero rating Time Warner content or DirecTV Now content on AT&T's networks (excluding them from subs' data use budgets), and he expects that would be the case through DOJ consent decrees if the FCC did not get a chance to impose behavioral remedies.

Related: Time Warner Would Pay $1.75B Break-Up Fee If AT&T Fails

Equity Research points out that DOJ has not blocked a vertical merger—that combines content with distribution assets—rather than a distributor buying up another distributor. But even the ability to foreclose OTT competition might be too much for the DOJ and FCC, as it was in the blocking of Comcast-Time Warner Cable.

Equity sees regulators addressing that through conditions preventing the company from disadvantaging competitors, including contractually, as DOJ did in taking the lead in the contractual restrictions on Charter-Time Warner Cable.

Most agree that the deal will get a thorough vetting and a lot of pushback from activists. "We expect this to be a tough fight," said Equity.

As if on cue, Michael Copps, former FCC chairman, now with Common Cause, said: “Allowing a communications behemoth like AT&T to swallow the Time Warner media empire should be unthinkable.”

Even if DOJ were the lead, it could have an FCC flavor, as Craig Moffett points out.

Renata Hesse, who succeeded Bob Baer back in April atop DOJ's antitrust division, was a merger advisor to the FCC before that, including on blocking AT&T-T-Mobile and conditioning the Charter-Time Warner Cable deal on not impeding over-the-top competitors—she got to weigh in on those at Justice, since she moved there before the conditions were announced. In addition, Jonathan Sallet, former FCC general counsel, is now with DOJ's litigation division.